Michael Shashoua: The Long View

Michael Shashoua, Inside Reference Data

The opportunities that emerging markets typically offer—especially when established and mature markets aren’t doing so well—aren’t always as great as they might seem at face value. Last month, Inside Reference Data (IRD) reported on the scarcity of evaluated pricing information in emerging markets, an obstacle to getting accurate and fast pricing data. An evaluated pricing professional observed that in any new market, information is generally going to be scarce and developing markets aren’t able to match the timeliness of data delivery seen in developed markets.

Therefore, firms doing business in the developing markets have to shell out in order to support their front offices’ abilities to get timely data sources. The key to spending wisely toward that goal, however, means taking a wider view of which areas within a firm are key to achieving faster data, including personnel, infrastructure and operational professionalism.

Additional Hurdles
Looking ahead to what IRD will investigate next month, we are finding that there are still other hurdles to clear concerning data management in emerging markets, particularly the issue of proprietary standards. The Brazilian market is a good example of this.

Brazil has, in some ways, graduated from its emerging market status, achieving greater transparency and attracting data providers and services both large and small. And they do face competition from established local providers that have an advantage of being better suited to their home turf than outside players whose infrastructure is too far ahead of what Brazilian systems can accommodate.

Similarly, having proprietary standards seems counterintuitive when organizations such as Swift are trying to make data and messaging standards compatible and consistent worldwide. In its annual Sibos conference this month, the industry cooperative is including a discussion on the future of the Brazilian market and its ongoing evolution, with representatives from Citi, Bradesco Asset Management and Febraban as participants.

“We have to be able to go after local markets and ask what we can do to help the industry with transaction flow to Latin American markets or make it more consistent and standardized around the world,” says Eileen Dignen, managing director, banking accounts and initiatives at Swift.

Certainly, there can be pitfalls to standardization, as was seen in 2009 when European regulators sanctioned Standard & Poor’s for abusing its role as caretaker for CUSIP (Committee on Uniform Security Identification Procedures) codes for US securities. Yet CUSIP still held value and importance for reducing the risk of failed trades and inaccurate reporting, as Diane Poole, senior vice president of the American Bankers Association wrote in an opinion article published in IRD in October 2010. Proprietary intelligence is necessary to reduce the cost of creating identifiers, she believes.

“It is possible to create identifiers at a reduced cost by removing proprietary intelligence from the process and simply issuing random codes,” she argues. “But that is hardly a step forward in the quest for transparency in financial markets. The only way to ensure the marketplace continues to receive identifiers that speed up trade processing and settlement—while giving market participants the confidence that their data is accurate—is through focused reinvestment into the system.”

Hard Time Focusing
The data providers based outside of the Brazilian market will have a harder time focusing their investment on improving the quality and speed of data if proprietary standards—in this case standards specific only to that one country’s markets—remain the only game in town. For a market trying to shed its “emerging” label, stubborn refusal to work toward compatibility with internationally accepted standards could keep Brazil firmly planted among markets still trying to emerge.

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